May 30, 2012
Sir, Martin Wolf, in “The riddle of German self-interest”, May 30, refers to governments and banks as “the drunks are seeking to stay upright by leaning on one another”, but fails, as usual, to explain that the brewage these drunkards intoxicated on, were the basically non-existent capital requirements for banks when engaging with something officially perceived as not-risky.
Mr. Wolf should run a regression between all the problem loans in banks that caused this crisis, like lousy securities disguised as splendid triple-A’s, loans to Icelandic banks, loans by the Spanish banks to the real estate sector in Spain, loans to a Greek government, and other similar… on the risk-weight of 20 percent or less and which, according to Basel II, allowed the banks to finance that mentioned holding only 1.6 percent or less in capital.
If the Germans would come to understand what was the primary cause Europe ran into trouble, then they might be more sympathetic to Wolf’s urgings, otherwise there is no reason why they should not believe these are simply the expression of his own self-interest.
May 28, 2012
Sir, Edward Luce, in “The worst is still ahead for Obama’s chief firefighter” May 28 writes “If there’s just Roosevelt and Churchill sitting in a room with a brandy, that’s an easier negotiation”
Absolutely! And this is what these two great gentlemen would say.
“Franklin, why do we not get rid of this stupid bank regulations they sold us as being able to control for the risk of default, and which has only brought us obese bank exposures to what was officially perceived as absolutely not risky, generating so many losses in lousily awarded mortgages disguised as splendid triple-A’s, lousy loans to Icelandic banks, lousy bank loans by the Spanish banks to the real estate, lousy loans to a Greek government?”
“Indeed dear Winston, and to top it up, as I believe you call it, they also hindered our banks to give loans to our “risky” small businesses and entrepreneurs, and which you and I know are the ones most likely to take our nations forwards”… and so…
“We, Franklin Roosevelt and Winston Churchill, in order to save the Western world, knowing that risk-taking is the oxygen of any development, hereby decree the closure of the Basel Committee for Banking Supervision and the expulsion, forever, of their silly wimpy nannies. We also declare substituting immediately a Financial Functionality Board for a purposeless Financial Stability Board”
May 23, 2012
Sir, Martin Wolf ask us to “Consider how much better off Europe would have been if the exchange rate mechanism had continued, instead, with wide bands. Interest rates in the crisis-hit countries would probably have been higher and asset price bubbles and current account deficits smaller”, “A fragile Europe must change fast” May 23.
Indeed Wolf is right, but only partially. He still stubbornly, no matter how much I explain it to him, refuses to consider that much more important than the Euro, for the construction of bubbles and deficits were the minuscule capital requirements for banks when lending to what was officially perceived as safe.
Has Wolf for instance completely forgotten the over 1 trillion in Euros that where invested in triple-A rated securities backed with lousily awarded mortgages to the subprime sector, and which required only 1.6 percent in capital of the banks, the same minimal capital requirement as when lending to Greece? What on earth had that to do with the Euro?
May 18, 2012
Sir, Martin Wolf cheerfully quotes Jonathan Portes of the National Institute of Economics and Social Research saying “with long-term government borrowing as cheap as in living memory, with unemployed workers… this is the time for government to borrow and invest”, “Cameron is consigning the UK to stagnation” May 18.
Not necessarily so! Government lending is not viewed by the markets as an attractive cruise boat, but more as a floating piece of driftwood they need to hang on to so as not to drown… and, if to the low rates nominal rates, we add the opportunity cost of all those who are being squeezed out from lending because their borrowings generate capital requirements for the banks while the “infallible sovereign” does not, then the real rates on government borrowing could be historically the highest.
Why do they not for instance half the current capital requirements for banks when lending to small businesses and entrepreneurs, so to allow these to lend a helping hand? Or has the whole debate and regulations been monopolized by the “we-trust-only-governments” crowd?
May 15, 2012
Sir, in “JPMorgan takes a salutary stumble” May 15, you hold that “Bank’s loss illustrates why its boss is wrong on regulation”. Mr. Dimon must certainly be wrong in many ways, at least I have never thought him or anyone else as infallible, but, let me assure that if it is about getting it wrong on regulations, then the regulators are the champs.
You mention “reckless practices to reduce risk” and in this I believe we have never ever seen something as reckless as our current regulators. They allowed the banks to hold minimum capital requirements for what they from the outside considered as safer lending than other, without giving a thought to the fact that the perceptions on risks had already been cleared for by the bankers, and that this would alter the whole dynamics of the market.
If I was a shareholder of JPMorgan I would most probably wish for Jamie Dimon to remain as its head, but, as a citizen, I have no doubt I would sack most of our current dumb regulators.
Do we not need to reign in the too-big-to-fail? Of course we do! But there are wise ways and there are reckless dumb ways of doing that. A wise way begins by eliminating all the growth-hormones that have made them so big, like ultralow capital requirements, the dumb way is to give them a special treatment, like is now proposed under the systemic approach, and which will only result in making them bigger and more dangerous.
May 12, 2012
Sir, in reference to John Gapper´s “Jamie Dimon is a whale of a hedge fund manager” May 12, I would not make such a big thing about the 2 billion dollars or so in losses sustained by JP Morgan.
Allowing the banks to lend out to the “infallible sovereigns” against no capital at all, signifies putting all ours, and our children’s´ and our grandchildren’s’ funds, in a truly mindboggling huge hedge fund where the proprietary dealings are not made by a Jamie Dimon, but by some unknown government bureaucrats… with certainly more skewed incentives…and that I guarantee will be much more harmful for tax payers than whatever a JP Morgan can invent.
Frankly sometimes I feel the urge of picking up the phone and calling a Mr. Dimon or someone like him, to beg him to help me save my small savings… that is as long as he agrees to do that in the shadows, as far away as possible from our current loony banks regulators.
May 08, 2012
Sir, Jens Weidmann, the president of the Deutsche Bundesbank, in “Monetary policy is no panacea for Europe´s ill”, May 8, writes that “Macroeconomic imbalances and unsustainable public and private debt in some member states lie at the heart of the sovereign crisis”.
Indeed that is the cancer but, the smoking that caused it, was the silly discrimination through the capital requirements for banks in favor of what was officially perceived as not risky and against what was perceived as risky. Like for instance the 62 to 1 leverage a German bank was allowed to have when lending to Greece, compared to the only 12 to 1 leverage allowed when lending to a German entrepreneur.
And so I feel there is need to remind Mr. Weidmann of the sad fact that Europe still smokes… a lot!